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Here's Why Investors Should Offload Pegasystems (PEGA) Stock

Zacks Equity Research
Updated

Holding onto shares of Pegasystems Inc. PEGA might not be a good option. Shares of Pegasystems have lost 17.6% in the past six months, underperforming the industry’s rally of 17.1%.

 

This Zacks Rank #4 (Sell) stock might continue to witness a downside. A key reason for this is the negative trend in earnings estimate revisions. For the full year 2017, we have seen two estimates move south in the past 60 days with no upward revisions. This resulted in the consensus estimate to trend lower, going from 91 cents a share 60 days ago to its current level of 73 cents.

Lower-Than-Expected Results & Stretched Valuations

The company reported fiscal third-quarter 2018 non-GAAP revenues of $179.81 million, which declined 2% from the year-ago quarter and also missed the Zacks Consensus Estimate of $198 million. This decline was due to the shift in the company’s recurring revenue mix.

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Pegasystems Inc. Revenue (TTM)

Pegasystems Inc. Revenue (TTM) | Pegasystems Inc. Quote

PEGA’s trailing 12 month price earnings (P/E) ratio is 111.74, while the industry's average trailing 12-month P/E ratio is lower at 29.26. This implies that the stock is currently overvalued.

Intensive Competition &Unimpressive Earnings Surprise History

With increasing global foothold, the company has been adversely affected by foreign exchange rate volatility as well as intensive competition.

Moreover, Pegasystems failed to outperform the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average negative earnings surprise of 18.68%.

Considering the aforementioned factors, it may not be a good decision to keep this stock in your portfolio, at least for now.

Stocks to Consider

Some better-ranked stocks in the broader technology sector are NetApp, IncNTAP, NVIDIA Corp. NVDA and Broadcom Ltd. AVGO, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NetApp, NVIDIA and Broadcom have a long-term expected EPS growth rate of 11.34%, 10.25% and 13.75%, respectively.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

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NetApp, Inc. (NTAP) : Free Stock Analysis Report
 
Pegasystems Inc. (PEGA) : Free Stock Analysis Report
 
Broadcom Limited (AVGO) : Free Stock Analysis Report
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
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Zacks Investment Research